The Table Below Reflects the Levels of Total Utility Received

question 251

Essay

The table below reflects the levels of total utility received from income for each of four members of a society.
Assume that the society has the following income distribution:
Peter $3
Paul $7
a. Mary $5
Jane $3
Is it possible for the government to increase total aggregate utility by redistributing income among members of society? Explain your answer. Assume that the government has $19 to allocate among the four members of society.
b. (Assume that no one has any income to start with.) If the government is interested in distributing income in a way that maximizes aggregate total utility, how should it distribute the $19 of income?
c. Does the table above describe a situation characterized by diminishing marginal utility? Explain your answer.

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Definitions:

Accrued Interest

Interest that has accumulated over a period but has not yet been paid or officially recorded.

Nominal Interest

The stated interest rate of a loan or investment, not accounting for inflation or compounding effects.

Equivalent

Something that is equal in value, function, or meaning to another in a specified context.

Compounded Semiannually

The process of calculating interest where the accrued interest is added to the principal sum twice a year, resulting in interest being earned on previously earned interest.